Nov 26, 2012

F.I.C.A. Is New Deal Machiavellianism?

Payroll taxes are a relic of New Deal
Machiavellianism: by taking a bite of every worker’s paycheck and
promising postretirement returns, Franklin Roosevelt effectively
disguised Social Security as a pay-as-you-go system, even though the
program actually redistributes from rich to poor and young to old. That
disguise has helped keep Social Security sacrosanct — hailed by
Democrats because it protects the poor and backed by Republicans as a
reward for steady work.

But the costs of this disguise have grown too great to bear. Whatever
its past political advantages, the payroll tax now imposes an
unnecessary burden on a stagnating economy. In an era of mass
unemployment, mediocre wage growth and weak mobility from the bottom of
the income ladder, it makes no sense to finance our retirement system
with a tax that falls directly on wages and hiring and imposes
particular burdens on small business and the working class.

First, Douthat is simply wrong to say that Social Security was disguised as a pay as you go system. He's got it backwards. Social Security is disguised but the disguise is that it appears to be a pre-funded retirement system when it is actually a pay as you go system. Douthat spent too much time coming up with the eye-catching phrase, "New Deal
Machiavellianism", and too little time thinking about what he was saying.

Second, Douthat goes on to say that he thinks that it would be a good idea to means-test Social Security. I doubt that idea will go over all that well even with those who generally want the federal government to do more income redistribution.